Alphabet slips as DOJ confirms push to split off Google Chrome browser

Alphabet stock fell Thursday morning — (NASDAQ:GOOG) -5.9%, (NASDAQ:GOOGL) -6.1% — missing out on a positive turnaround in other Communication Services stocks in the wake of the Justice Department’s confirmation that it’s pushing for the company to divest its dominant Chrome Web browsing software. The stock was relatively calm premarket, but turned lower throughout the morning.

Speculation had grown in recent days that the DOJ might push for splitting off the browser, and a late Wednesday filing confirmed the department was seeking the remedy after Google was found to have operated an illegal monopoly in search and search ads in a landmark antitrust trial.

That’s not the only remedy recommended from the DOJ, which also might pursue harsh changes for Google search on the company’s Android mobile operating system. The remedies trial in D.C. District Court is set for April, and Google is likely to file a lengthy response to the DOJ by the end of the year.

The proposal is “staggering” in seeking “dramatic changes to Google services,” Alphabet Chief Legal Officer Kent Walker said in response Thursday.

“DOJ had a chance to propose remedies related to the issue in this case: search distribution agreements with Apple, Mozilla, smartphone OEMs, and wireless carriers,” Walker wrote.

“Instead, DOJ chose to push a radical interventionist agenda that would harm Americans and America’s global technology leadership. DOJ’s wildly overbroad proposal goes miles beyond the Court’s decision. It would break a range of Google products — even beyond Search — that people love and find helpful in their everyday lives.”

Walker complained that the DOJ remedy proposal would call for two separate choice screens before accessing Google search on a Google Pixel phone: “And that’s just a small part of it. We wish we were making this up.”

The DOJ is making a “dramatic ask,” Wells Fargo analyst Ken Gawrelski said in reaction, saying the proposal if implemented is the “likely worst-case scenario for Google.”

“We would encourage investors to watch closely for any developments on new DOJ leadership and commentary related to existing ‘big tech’ litigation,” he said. A Chrome separation, while nominally a small part of Alphabet business, could put at least 15% of Google search revenue at risk, he said.

Meanwhile, aside from Chrome divestment, the proposed prohibition on paying for search distribution offers “meaningful risk” to Google’s competitive position if partners explore alternative options to make up for search revenue shortfalls. Each 10% of Apple search share, he estimates, means 4% of Alphabet’s fiscal 2025 EPS (figuring Apple contributes about 50% of Google search revenues at a 36% Traffic Acquisition Cost rate).

RBC noted that at its Global TIMT Conference, Scope3 CEO Brian O’Kelley downplayed the potential impact, pointing out people going to Google.com “don’t need to own the browser as a portal to the internet.”

“To simplify, the government is asking for everything as part of a remedy and is likely going beyond the scope of the infringement,” Oppenheimer said in its reaction. “We view the GOOG weakness as a buying opportunity for several reasons: 1) if Alphabet was ever broken up, we think the [sum of the parts] and rationalization of costs would suggest a materially higher stock price; 2) there is not enough time to conclude the process before the next administration takes office; and 3) we think it’s way too early to speculate how a Trump administration will enforce antitrust.”

The proposed remedies still include a number of behavioral changes — among them, prohibiting Google from paying distributions for preinstallation distribution and allowing syndication of search results — and KeyBanc analyst Justin Patterson notes that real clarity may not come until early in 2025, ahead of a final decision next August.